Adyar Gopal Parivar
Our Economy
              Our economy is tied up with the
economy of the world only to a certain
extent, because our currency can not be
easily remitted out of the country. The total
amount of money remains unaffected by the
changes in the amount of money in other
countries because of this 'tap'. Suppose
there are ten different containers of various
sizes connected to each other with pipes at
the bottom and each container represents a
country. Larger economies like USA are
represented by big containers and smaller
economies are represented by smaller
containers.
                   When water is filled in these
containers the level of the water stabilizes
after a few seconds and remains at the same
height in all the containers. Suppose a few
glasses of water from any container is taken
out then the levels in all the containers falls
to a new level. This will not happen in those
containers the pipes of which are fitted with
taps on either side. India is such a container
with taps for both inward flow and outward
flow of money. The outward flow is more
stringent than the inward flow. If water is
added to one of the containers and the level
of water in it rises then those containers with
a tap fitted will not show increase in the
water level. The foreign exchange
regulations prevent any substantial changes
in our economy by global
upheavals.                 
             So long as we maintain our money
level by maintaining a high volume Gross
Domestic Product (GDP), by producing
valuable grains, vegetables, flowers, cloth,
machinery, and other consumer products as
well as services then our Product will match
or exceed the Consumption and there will be
no need to borrow money from outside.
               However, the price rise of goods
affects the Consumption and then also the
Product within the country. Price rise affects
the total assets in that we get a smaller
amount of the goods for the same amount of
money. Price rise therefore affects the value
of our total capital as well as the liquidity.
More money is needed to buy the same
amount of goods. Or less amount of goods
can be purchased with the same amount of
money.
               It is important to note that it is not
easy to reduce consumption. In fact increase
in the population day-by-day increases the
amount of goods consumed. Therefore the
money required to fulfill the demand of goods
increases two-fold, with the result that there
could be shortage of cash. Shortage of cash
encourages withdrawal of savings and
thereby shortage of money available for
loans. Loans are required for businesses,
industries, farms, services sector and for
every single source of GDP.
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Therefore the GDP might be affected by
the price rise. The same thing happens
with inflation, with increased impact. Price
rise is a one-time phenomenon but
inflation is continuous. Unless the GDP
grows in the same proportion as the rate
of inflation there will be a recession and
then depression.
              By pumping in extra capital into
the economy by drawing from the
reserves, the government can make
enough money available for loans to
businesses, industries, farms, services
sector and for every single source of
GDP to offset the strain on production.
The country becomes poorer to the
extent that the reserves become reduced.
The amount of reserves can dwindle very
fast in an environment of price rise and
high inflation. If our reserves are utilized
to service the price rise of imported
goods then the reserves will dwindle in a
matter of days. A poor country is poor
because its reserves are very low and it
consumes more than it produces.
               Mismanagement of income and
expenditure by the government can
produce a situation of dwindling reserves.
If more money is drawn for travel abroad
or remittances abroad then the reserves
will fall to negative levels.
              There is nothing a common man
can do in these circumstances except
keep working in his appointed place. The
fall in the stock market indices is just an
early sign of the approaching recession.
The capital assets of the companies lies
in the stocks. As the stock prices fall the
assets of the company too fall. When the
stocks fall the companies will have less
credit rating and can borrow only a
reduced amount of money to run the
company. With less money to spend for
raw materials or pay the wages, reduces
the capacity of the company to produce
enough saleable goods. Thus, the GDP
also may fall to levels that are
uncomfortable to the nation.
              It is a vicious cycle and a large
country like India can show cracks in its
walls by price rise and high inflation, the
latter more important than the former. The
government can save the situation by
reducing the unnecessary expenses.
Farm loan waiver and other similar
popular spending measures can tilt the
balance for the worse.

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